Woolworths
is considering challenging a decision by the Australian Competition and Consumer Commission that could curtail its plans to open as many as 25 supermarkets a year.

The ACCC has vetoed Woolworths’ plan to build a supermarket in a western Sydney housing estate, because it already has a store in the same suburb.

Australia’s largest retailer fears the ACCC’s decision to oppose its acquisition of a development site at Glenmore Ridge, in the suburb of Glenmore Park, may set a precedent that will curtail its ambitious store expansion plans. It could also slow the growth plans of Coles.

It is the first time the competition regulator has blocked the acquisition of an undeveloped site, rather than an existing store, and the decision comes amid a crackdown on creeping acquisitions by the two major chains.

Woolworths had been in negotiations with the landowner, Stockland, since December 2011 and was planning to build a 3200-square-metre supermarket and specialty shops on the site.

The ACCC was alerted to the acquisition by a competitor. After a 12-month inquiry, it found Woolworths’ acquisition of the site would likely lead to a substantial lessening in competition in the local grocery market.

“Woolworths already operates the only supermarket in the suburb of Glenmore Park, and it has the next closest supermarket located in the nearby suburb of South Penrith," said ACCC chairman
Rod Sims
, who has previously expressed concern about the growing market share of the two major grocery chains.

“The Glenmore Ridge site represents the only opportunity for a competing supermarket to enter Glenmore Park in the foreseeable future, other than an ALDI that is due to open in 2014," he said. “In effect, the choice is between Glenmore Park residents having two Woolworths and one ALDI supermarket, or having three different supermarkets in their area."

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An alternative supermarket at Glenmore Ridge would stimulate local competition and give greater choice to residents in the area, he said. Woolworths will decide whether to challenge the decision in court after studying the ACCC’s full decision.

ACCC could struggle to defend decision

Competition lawyers said the ACCC could struggle to defend its decision because of the lack of data about trading in the local area and assumptions about the impact of a theoretical alternative supermarket.

“It is very well to say an alternative supermarket in the Glenmore Ridge site would stimulate local competition, but where is that hypothetical alternative competitor?" said Clifford Chance partner Dave Poddar.

“It would be very difficult indeed to oppose in court without providing actual hard evidence of a real and not hypothetical alternative constraint – as the ACCC found to their cost in losing the Metcash case," Mr Poddar said.

However, Mr Sims played down the likelihood of a legal challenge.

“We wouldn’t have taken this decision if we didn’t think that this was the right thing to do," Mr Sims told The ­Australian Financial Review.

“I think we are being consistent – what Woolies do is up to them."

The ACCC has blocked or queried several acquisitions by Woolworths over the past 12 months, including liquor stores in Tasmania and NSW, and is currently reviewing Woolworths’ plans to buy a supermarket in the ACT and three in Queensland owned by Metcash and independent grocers.

Lawyers said Woolworths had grounds to be worried about the Glenmore Ridge decision, which could set a precedent.

“I’d be concerned because this comes back to the whole issue about creeping acquisitions," said one lawyer.

“This is the first major greenfield site where you have other competitors [ALDI] opening up in a reasonable distance. If the view is you have to have another major alternative [like Coles] that does start to constrain Woolies and could limit its options for organic growth," the lawyer said.

“If the commission is prepared to oppose development sites it is raising the risk that their [growth] strategy will be impeded," said another.